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Minimum wage underpayment in the informal economy

The minimum wage is an important part of the Government’s goal of reducing low pay in employment. All employers are obliged to pay the National Minimum Wage (NMW) to workers within its scope at the rate that is set by the legislation. Beginning in April 1999, the NMW has been set annually following advice from the Low Pay Commission. Since 1 April 2016, the National Living Wage, applying to workers aged 25 and over, has complemented the NMW.

Estimating the numbers of jobs that pay at rates below the minimum wage is difficult. There are difficulties in both collecting data and in finding methods of measurement. Further, the jobs that pay below the minimum wage could be informal, avoiding easy detection. This study has reviewed a number of methods used in recent research to overcome these challenges of measuring underpayment in the informal economy. The report recommends four approaches that address the challenges to a different degree. Their feasibility varies and the report then focuses on challenges in applying the methods for quantifying the extent of underpayment.

Belmana were pleased to lead this research, working with the University of Middlesex and colleagues at the University of West of England. It has been published on the same day as the Department for Business, Energy and Industrial Strategy’s Labour Market Enforcement Strategy’s introductory report.